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Factors Setting the Tone for Darden's (DRI) Q4 Earnings

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Darden Restaurants, Inc. (DRI - Free Report) is scheduled to report fourth-quarter fiscal 2022 results on Jun 23, before the opening bell. In the last reported quarter, the company reported a negative earnings surprise of 7.7%.

How Are Estimates Placed?

The Zacks Consensus Estimate for the fiscal fourth-quarter earnings per share (EPS) is pegged at $2.21, indicating an improvement of 8.9% from $2.03 reported in the year-ago quarter.

For revenues, the consensus mark is pegged at $2,544 million, suggesting an 11.6% increase from the year-ago quarter’s figure.

Darden Restaurants, Inc. Price and EPS Surprise

 

Darden Restaurants, Inc. Price and EPS Surprise

Darden Restaurants, Inc. price-eps-surprise | Darden Restaurants, Inc. Quote

 

Let's take a look at how things have shaped up in the quarter.

Factors at Play

Darden’s fiscal fourth-quarter performance is likely to have benefited from the To-Go platform, menu modifications and unit-expansion efforts. This and strength in digital platform and off-premise business are likely to have driven the company’s top line in the fiscal fourth quarter. During the previous quarter, digital transactions accounted for 63% of all off-premise sales and 12% of Darden's total sales. With more focus on streamlining of order pick-up process and payment methods as well as technological implementations (to reduce friction), the momentum is likely to have persisted in the fiscal fourth quarter.

Solid segmental performance is likely to have supported the company’s performance in the fiscal fourth quarter. The Zacks Consensus Estimate for sales at Olive Garden, Fine Dining, and LongHorn Steakhouse is pegged at $1,206 million, $190 million and $614 million, suggesting year-over-year growth of 9.2%, 25.8% and 7.3%, respectively. In addition, the same for Other business is pegged at $528 million, indicating an increase of 16.8% from the prior-year quarter.

Emphasis on strengthening its in-restaurant execution through investments in quality, improving staffing levels and simplifying operations (to augment the guest experience) is likely to have benefitted the company in the to-be-reported quarter. Taking all into consideration, the company projects fiscal fourth-quarter total sales between $2.52 and $2.59 billion. It anticipates EBITDA margin to remain elevated from pre-COVID levels and expects EPS in the range of $2.13-$2.28.

However, supply chain disruptions are likely to have affected the company’s performance in the fiscal fourth quarter. This and rising consumer inflation levels are likely to have impacted margins in the to-be-reported quarter. For fiscal 2022, the company expects total inflation of 6% (up from the prior projection of 5.5%); commodities inflation of 9% (significantly up from 7-8% estimated earlier) and total restaurant labor inflation of 6-6.5%, which includes hourly wage inflation of 9% (in-line with previous estimates).

What Our Model Says

Our proven model does not conclusively predict an earnings beat for Darden this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that's not the case here.

Earnings ESP: Darden has an Earnings ESP of -1.36%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company has a Zacks Rank #4 (Sell).

Stocks Poised to Beat Earnings Estimates

Here are some stocks from the Zacks Retail-Wholesale sector that investors may consider, as our model shows that these also have the right combination of elements to post an earnings beat:

Group 1 Automotive, Inc. (GPI - Free Report) currently has an Earnings ESP of +2.98% and a Zacks Rank #2.

Shares of Group 1 Automotive have increased 6.9% in the past year. GPI’s earnings beat the consensus mark in each of the last four quarters. The company has a trailing four-quarter earnings surprise of 6.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

McDonald's Corporation (MCD - Free Report) has an Earnings ESP of +1.84% and a Zacks Rank #3.

Shares of McDonald's have inched up 0.6% in the past year. MCD’s earnings surpassed the consensus mark thrice in the trailing four quarters and missed once, the average surprise being 6.3%.

Lithia Motors, Inc. (LAD - Free Report) currently has an Earnings ESP of +2.38% and a Zacks Rank #3.

Shares of Lithia Motors have declined 21.5% in the past year. LAD’s earnings beat the consensus mark in each of the last four quarters. The company has a trailing four-quarter earnings surprise of 30.5%, on average.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.